The elevated volatility around major technology stocks that benefited from the artificial intelligence boom — and that had been steering the U.S. market for months — is beginning to fade. CNBC reports that a closely watched options-market indicator suggests investors are paying less attention to individual AI names and more to broader macroeconomic and policy risks.
Market participants have been watching the gap between the volatility of big tech stocks and that of the wider market, most commonly measured by the difference between Cboe’s VIXEQ and VIX indexes. That spread reached record highs over the summer as tech giants at the center of the AI rally regularly added or erased hundreds of billions of dollars in market value in a single day while the rest of the market remained relatively subdued. Now that pattern is reversing, with the VIX rising to its highest level since April relative to VIXEQ.
The shift is happening alongside an accelerating sell-off in U.S. Treasury bonds. The 10-year yield is nearing 5%, a three-year high, suggesting investors may now be looking to macroeconomics and policy decisions as the main forces behind the market’s next move.
Scott Nations, president of Nations Indexes, told CNBC that throughout the summer, single-stock implied volatility ran well ahead of S&P 500 implied volatility as traders looked past macro concerns and focused on company-specific stories, particularly in the AI space. That is now changing, he said, as resurgent inflation driven by higher oil prices, the Federal Reserve’s response at its September 16 meeting, and political and geopolitical concerns take center stage.
Crude oil futures have moved back above $100 for the first time since May. At the same time, energy shares in the S&P 500 hit fresh highs on Thursday, and the State Street Energy Select Sector SPDR ETF (XLE) widened its lead over technology as the best-performing sector of the year, up 43%.
According to Nations Indexes, volatility fell on Thursday in 18 of the 19 stocks tracked by its VolDex measure, which is based on at-the-money options prices. Exxon Mobil was the only exception.
Another factor draining volatility from the AI trade is the end of earnings season. Corporate results often act as a natural catalyst for sharp price swings, and that effect tends to fade once reporting season is over. There is also a feedback loop between stock prices and retail options demand: when popular names such as Micron and SanDisk stop climbing, bullish options flows tend to slow as well.
Micron’s implied volatility dropped from 112 ahead of its late-June earnings to as low as 58 last week, even though the stock price declined. A similar pattern appeared in SpaceX: despite gaining 30% since its August report, volatility fell from 122 to 56.
Kevin Davitt, head of index options content at Nasdaq, said the relationship between single-stock volatility and index volatility has returned to more normal levels. In his view, the epicenter of the earlier summer divergence was the semiconductor sector, where rising share prices were accompanied by rising volatility, with that effect rippling into index options and especially NDX.
